Spencer Thompson from the University of Cambridge in the UK recently published a paper outlining a new theory of the firm, taking the worker-owned business as its starting point. It is a fascinating paper at a theoretical level, but in it he also discusses a number of practical issues about the design of worker-owned firms.

One concept that is particularly intriguing is his notion of “deep-level cooperation.” Thompson explains that firms function through a combination two processes: coordination and cooperation. We can understand coordination as the vertical organization of a firm, its management. Workers have certain skills and know when and where to apply their skills because their work is coordinated together through some sort of management structure. Everyone in the firm has a role and all those roles are coordinated together to produce a product or a service.

But firms also require cooperation to function. We can understand cooperation as the horizontal organization in a firm. Workers aren’t just coordinated into a production process, but they also must cooperate together to produce the product or service. While distinct in theory, cooperation and coordination are closely intertwined in practice, and both are required for a firm to succeed.

Thompson’s insight is to further divide cooperation into two different levels: surface-level cooperation and deep-level cooperation. Surface-level cooperation is the kind of cooperation that can be specified in an employment contract. When you are employed, you agree to cooperate in a productive process in certain specific ways in exchange for a pay check. It is a market transaction, but as Thompson points out, surface-level cooperation is not enough to keep a firm going. Indeed, working to rule — where workers stick exactly to their employment contracts, doing no more than explicitly required — is a kind of industrial action, just short of an outright strike, and it can slow work down to a crawl. Without a culture of deep-level cooperation, firms can’t function well.

The dark secret of capitalism is that all firms take advantage of our natural cooperative nature as human beings and depend on us ‘donating’ our deep-level cooperation to our employers as we do our jobs. Deep-level cooperation is all the cooperation we provide with our fellow workers that cannot be efficiently described in an employment contract, and Thompson suggests that worker-owned businesses may have a competitive advantage over capitalist businesses in this respect, in that worker-owners may be more likely to engage in deep-level cooperation than employees in capitalist firms because worker-owners are more socially invested in their businesses.

Thompson argues that there is a trade-off between coordination and cooperation. As firms grow and as management becomes more bureaucratic and vertical, coordination from above may undermine workers’ desire to cooperate at a deep level. No one likes to be bossed around, and the more bureaucratic our jobs become, the more likely it is that we will take a purely individualistic approach to our work, that we will see our jobs simply as a way to get a pay check, and the less likely it is that we will cooperate socially with our co-workers.

The practical implication is that in order to realize the full efficiency advantages of worker-ownership, cooperative firms should always aim to organize themselves as horizontally as possible. The more a worker-owned firm turns to top-down structures to coordinate production, the more it risks undermining its members’ intrinsic desire to cooperate at a deep level in the business as a shared project.

This is a particular problem as a firm grows. Many small worker-owned businesses manage to successfully structure themselves as completely horizontal organizations, often making all major decisions by full consensus, but as worker-owned businesses grow, they typically move to a more vertical structure, and particularly when they reach the size of a cooperative corporation like Mondragon, for instance, significant top-down coordination seems almost unavoidable.

The trick then would be to find ways to build as much horizontal decision-making as possible into the structure of worker-owned firms at all stages of their development and growth, and also to make certain that management is always meaningfully and transparently answerable to the democratic will of the worker-owners as a whole. As Thompson points out, democracy in a worker-owned firm has to be meaningful before it can inspire a culture of deep-level cooperation among its members:

[…] if the day-to-day experience of worker-members (and managers) is no different from that of employees (and managers) in conventional firms, abstract notions of equality and participation substantiated by occasional exercise of voting rights are unlikely to influence workplace behaviour. (p. 9)

I’d be interested to know what readers think about these ideas. In your experience, how large can a firm grow and still maintain fully horizontal decision making? Is there an upper limit? And what are some of the ways to maintain horizontal decision-making and meaningful democracy in larger, more complex firms?